01—Abstract
Summary
Summary of the 10-K filed February 28, 2017. Cited figures are marked; the original filing is the authoritative source.
JPMorgan Chase reported 2016 net income of $24.7 billiona, or $6.19 per diluted share, on net revenue of $95.7 billion, up 2% year over year.
Net income rose 1%, driven by a 5% decline in noninterest expense to $55.8 billionb, mainly from lower legal expense, partly offset by a $1.5 billion increase in the provision for credit losses to $5.4 billion. Return on common equity was 10% and return on tangible common equity was 13%. Balance sheet strength improved.
Total assets reached $2.49 trillionc and stockholders' equity $254.2 billion. The CET1 capital ratio on a Basel III transitional basis rose to 12.4% from 11.8%, and tangible book value per share grew 7% to $51.44. The firm returned capital through $9.1 billion of common stock repurchases and $8.5 billion of dividends paid, and the common dividend was raised to $0.48 per quarter.
Average core loans grew 15%, led by consumer growth in CCB and commercial real estate in CB. Management guides to 2017 net interest income about $3 billiond higher than 2016, roughly 10% average core loan growth, net charge-offs near $5 billion, and firmwide adjusted expense near $58 billion excluding legal. Key risks include the U.K.'s planned exit from the EU, the Resolution Plan process with the Federal Reserve and FDIC, ongoing legal and regulatory matters (including FX, LIBOR and mortgage-related investigations), and credit deterioration in the Oil & Gas and Natural Gas Pipelines portfolios.
02—Key points
Key Highlights
- Net income of $24.7 billion (+1%) and diluted EPS of $6.19 (+3%) on net revenue of $95.7 billion (+2%)
- Noninterest expense fell 5% to $55.8 billion, driven by lower legal expense (legal benefit of $317 million in 2016 versus $3.0 billion expense in 2015)
- Provision for credit losses rose to $5.4 billion from $3.8 billion, reflecting credit card growth and wholesale downgrades in Oil & Gas and Natural Gas Pipelines
- CET1 ratio (Basel III transitional) improved to 12.4% from 11.8%; tangible book value per share up 7% to $51.44
- Capital return of $9.1 billion in buybacks and $8.5 billion in dividends paid; quarterly common dividend raised to $0.48
- Firmwide average core loans grew 15%, with CCB average core loans up 20% and record CB and AWM loan balances
- 2017 outlook: net interest income about $3 billion higher, core loan growth near 10%, net charge-offs near $5 billion
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 28, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $96.57B$93.54B | +3.2% |
| Interest Expense | $9.82B$7.46B | +31.6% |
| Net Income | $24.73B$24.44B | +1.2% |
| EPS (Basic) | $6.24$6.05 | +3.1% |
| EPS (Diluted) | $6.19$6.00 | +3.2% |
| Shares Outstanding (Basic) | 3.66B3.74B | −2.2% |
| Shares Outstanding (Diluted) | 3.69B3.77B | −2.2% |
05—Questions
Frequently Asked Questions
What drove the change in JPMorgan's profitability in 2016?
Net income rose 1% to $24.7 billion. Revenue growth of 2% came mainly from higher net interest income across segments and stronger Markets noninterest revenue in CIB. Lower legal expense cut noninterest expense by 5%, which offset a $1.5 billion increase in credit provisions and higher income tax expense (effective tax rate of 28.4% versus 20.4% in 2015, which had benefited from $2.9 billion of tax recognitions).
How strong is the firm's capital and liquidity position?
Capital is strong. The Basel III transitional CET1 ratio was 12.4%, and the fully phased-in CET1 ratio was an estimated 12.2%. The fully phased-in supplementary leverage ratio was 6.5%. The firm held $524 billion of high quality liquid assets and was compliant with the fully phased-in U.S. LCR. The filing also states the firm expects to operate with a Basel III CET1 ratio between 11% and 12.5%.
What are the main risks flagged for investors?
Key risks include credit deterioration in Oil & Gas and Natural Gas Pipelines (criticized exposure in the total wholesale book rose to $19.8 billion), the U.K.'s planned exit from the EU, the Resolution Plan process (the 2017 plan is due July 1, 2017), and the TLAC and GSIB surcharge requirements. Legal exposure remains material, including FX investigations, LIBOR-related litigation, MBS repurchase claims, and mortgage-related matters. The firm estimates reasonably possible losses above reserves of $0 to about $3.0 billion.
What is management's outlook for 2017?
Management expects net interest income about $3 billion higher than in 2016, assuming no change in rates since December 31, 2016, reflecting the December 2016 Fed rate increase and loan growth. Average core loan growth of about 10% is expected, net charge-offs of about $5 billion, and firmwide adjusted expense of about $58 billion excluding legal expense. The consumer allowance could rise about $300 million, and the wholesale allowance could rise modestly.
How did the firm's business segments perform?
CCB earned $9.7 billion, down 1%, as higher provisions offset revenue growth. CIB earned $10.8 billion, up 34%, with Markets revenue up 11% and noninterest expense down 11%. Commercial Banking earned $2.7 billion, up 21%, on record loan growth. AWM earned $2.3 billion, up 16%. The Corporate segment posted a net loss of $704 million, compared with net income of $2.4 billion in 2015 that included tax benefits.
06—Continue